New York, March 10, 2021 -- Moody's Investors Service, ("Moody's") has
affirmed the Baa3 backed long-term issuer rating of AerCap Holdings
N.V. (AerCap) and the Baa3 senior unsecured ratings of subsidiaries
AerCap Ireland Capital D.A.C., AerCap Global
Aviation Trust (senior unsecured shelf (P)Baa3) and International Lease
Finance Corporation. The outlooks remain negative. This
follows AerCap's announcement that it will acquire GE Capital Aviation
Services (GECAS) from General Electric Company (GE) for approximately
$30 billion.
Affirmations:
..Issuer: AerCap Global Aviation Trust
....Junior Subordinated Regular Bond/Debenture,
Affirmed Ba1 (hyb)
....Senior Unsecured Shelf, Affirmed
(P)Baa3
..Issuer: AerCap Holdings N.V.
.... Issuer Rating, Affirmed Baa3
....Junior Subordinated Regular Bond/Debenture,
Affirmed Ba2 (hyb)
....Senior Unsecured Shelf, Affirmed
(P)Baa3
..Issuer: AerCap Ireland Capital D.A.C
....Senior Unsecured Regular Bond/Debenture,
Affirmed Baa3
....Senior Unsecured Shelf, Affirmed
(P)Baa3
..Issuer: Delos Finance SARL
....Senior Secured Bank Credit Facility,
Affirmed Baa2
..Issuer: ILFC E-Capital Trust I
....Pref. Stock Preferred Stock,
Affirmed Ba1 (hyb)
..Issuer: ILFC E-Capital Trust II
....Pref. Stock Preferred Stock,
Affirmed Ba1 (hyb)
..Issuer: International Lease Finance Corporation
....Pref. Stock Preferred Stock,
Affirmed Ba2 (hyb)
....Senior Unsecured Regular Bond/Debenture,
Affirmed Baa3
Outlook Actions:
..Issuer: AerCap Global Aviation Trust
....Outlook, Remains Negative
..Issuer: AerCap Holdings N.V.
....Outlook, Remains Negative
..Issuer: AerCap Ireland Capital D.A.C
....Outlook, Remains Negative
..Issuer: Delos Finance SARL
....Outlook, Remains Negative
..Issuer: ILFC E-Capital Trust I
....Outlook, Remains Negative
..Issuer: ILFC E-Capital Trust II
....Outlook, Remains Negative
..Issuer: International Lease Finance Corporation
....Outlook, Remains Negative
RATINGS RATIONALE
Moody's affirmed AerCap's ratings in expectation that the
company's proposed acquisition of GECAS will enhance its already
strong competitive positioning in commercial aircraft leasing, based
on increased earnings and cash flow generating power from a larger high-quality
fleet and increased customer base. AerCap's ratings also
reflect the company's continued commitment to strong liquidity and
capital management, including raising additional funding in order
to maintain a liquidity sources to uses ratio of at least 150%
at closing and reducing leverage post-closing to meet its 2.7x
target adjusted debt-to-equity ratio. The outlook
remains negative, reflecting the execution risks associated with
AerCap's need to raise significant acquisition financing,
as well as our expectation that the current downturn in the airline industry
will result in elevated risks to AerCap's earnings, cash flow,
and liquidity and capital positions until a recovery in air travel demand
strengthens airlines operations and increases their need for leased aircraft.
AerCap will acquire GECAS for total consideration including 111.5
million of newly issued AerCap shares, $24 billion of cash
and $1 billion of AerCap notes and/or cash. Based on an
AerCap share price of $45, the transaction consideration
has a value of approximately $30 billion. GE has agreed
to purchase $1 billion of subordinated or senior notes from AerCap,
resulting in a net cash payment to GE of $24 billion. At
closing, GE will have a 46% minority stake in AerCap and
will be entitled to nominate two directors to AerCap's Board of
Directors. The transaction is expected to close in the fourth quarter
of 2021, subject to AerCap shareholder and regulatory approvals
in multiple jurisdictions.
The transaction will significantly increase AerCap's operational
scale, making the company the largest aircraft leasing franchise
globally. AerCap's assets totaled $42 billion at 31 December
2020, while GECAS had assets of $36 billion at the same date.
Because AerCap has successful prior experience integrating large acquisitions,
Moody's expects that the company's integration of the GECAS
fleet and operations will be manageable.
The transaction will improve the risk characteristics of AerCap's
fixed-wing aircraft fleet. AerCap's combined fleet
of over 2,000 aircraft will have a lower percentage of wide-body
aircraft (approximately 40% versus 47% currently);
wide-bodies are more challenging lease assets because they have
a smaller user base and are more costly to acquire, maintain and
transition than narrow-body aircraft. Further fleet improvements
are embedded in the combined order book of 493 new-technology primarily
narrow-body aircraft, which will further AerCap's transition
to a fleet comprised of the most efficient and in-demand commercial
aircraft. Importantly, nearly all of AerCap's new deliveries
through 2022 are committed to leases, while just a modest number
of GECAS new deliveries have yet to be committed to leases.
AerCap's operational diversity will increase with the addition of
GECAS' over 900 owned and managed aircraft engines and over 300
owned helicopters. Moody's expects that AerCap's pro
forma customer concentrations will decline, reflecting an increase
in customers to approximately 300 from 200 currently, which should
reduce the company's performance volatility.
AerCap has obtained commitments for $24 billion of bridge financing
from banks to fund its payment to GE at closing. The large cash
payment reflects the fact that GECAS has immaterial debt capital of its
own that will carry over into the combined entity. A credit challenge
associated with the transaction includes AerCap's need to raise
longer-term debt capital to replace the bridge financing.
AerCap's larger post-transaction scale will significantly
increase its exposure to the confidence-sensitivity of the debt
capital markets, a liquidity constraint given the specialized nature
of aircraft leasing and its high exposure to the weakened airline industry.
Additionally, the transaction will have an uncertain effect on AerCap's
debt-to-equity leverage at closing, given the potential
fluctuations in the company's share price that will drive the value
of the shares AerCap issues to GE as part of the transaction consideration.
AerCap remains committed to a 2.7x adjusted debt-to-equity
leverage ratio, which is consistent with Moody's investment-grade
criteria. Moody's expects that AerCap will take steps to
reduce leverage to that level should it be necessary post-closing,
though the length of time required to do so is uncertain, which
could affect Moody's rating.
The negative outlook reflects the execution risks associated with AerCap's
transaction funding requirements as well as our expectation that the deep
global downturn in the airline industry elevates risks to AerCap's
earnings, cash flow, and liquidity and capital positions until
airlines' demand for leased aircraft rises in connection with a recovery
in air travel volumes. Moody's base case expectation is that
air travel volumes will reach about 50% of 2019 levels by the end
of 2021 and rise to approximately 90% by the end of 2023.
Moody's regards the coronavirus outbreak as a social risk under its ESG
framework, given the substantial implications for public health
and safety. Today's rating action reflect the negative effects
on AerCap of the breadth and severity of the downturn in aviation,
and the deterioration in credit quality, profitability, capital
and liquidity it has triggered. The rating actions also reflect
AerCap's governance as a key ratings consideration, given
the company's acquisition of GECAS will result in changes to its
ownership and board representation.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Moody's could revise AerCap's outlook to stable if:
1) the company demonstrates material progress raising required transaction
financing; 2) recovery in the aviation sector, as indicated
by trends in air travel volumes, is expected to be consistent with
or stronger than Moody's base case; and 3) the company's
share price trends support an expectation that AerCap's financial
flexibility remains sound, as reflected by our anticipation that
adjusted debt-to-tangible net worth leverage (Moody's
adjusted) at closing will be less than 3.5x.
AerCap's ratings could be upgraded if: 1) the company's GECAS
acquisition execution and integration risks are well managed; 2)
the strength of recovery in air travel volumes exceeds Moody's base
case; 3) the company is expected to generate consistently stronger
and more stable profitability and cash flow ratios compared to peers;
4) the company continues to demonstrate effective liquidity management
post-acquisition, during the aviation sector downturn as
well as post-recovery; 5) fleet integration, residual
value risks and exposure concentrations are well managed including through
the downturn; and 6) the company's debt-to-tangible
net worth leverage ratio declines to less than 3.0x (Moody's
adjusted).
AerCap's ratings could be downgraded if: 1) liquidity coverage (Moody's
sources-to-uses over a one-year horizon) declines
to less than 150% during the downturn or less than 120%
long-term; 2) recovery in air travel volumes declines materially
below Moody's base case; 3) revenues weaken and costs increase
to the extent that the company will be unable to generate materially improved
profits and operating cash flow by the end of 2023; 4) debt-to-tangible
equity leverage increases to more than 3.8x (Moody's adjusted);
5) the company's competitive positioning otherwise weakens.
The principal methodology used in these ratings was Finance Companies
Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1187099.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of
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At least one ESG consideration was material to the credit rating action(s)
announced and described above.
The Global Scale Credit Rating on this Credit Rating Announcement was
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3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
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Mark L. Wasden
Senior Vice President
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Ana Arsov
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody's Investors Service, Inc.
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